Robert Besser
29 May 2025, 23:37 GMT+10
TOKYO, Japan: As global inflation remains stubborn and growth prospects dim, central bankers from around the world gathered in Tokyo this week to tackle the new economic dilemmas reshaping monetary policy.
The Bank of Japan (BOJ) and its think tank hosted a two-day closed-door conference that began on May 27. It brought together top policymakers from the U.S., Europe, and Asia.
Unlike Jackson Hole's high-altitude setting, this quieter Japanese equivalent offered a similarly weighty agenda. The theme was "New challenges for monetary policy" — from persistent inflation and fragile growth to volatile markets and tariff-fueled disruptions, many stemming from U.S. President Donald Trump's trade policies.
The BOJ itself faces a growing conundrum. After years of ultra-loose monetary policy, it began cautiously raising rates and tapering bond purchases. But new global uncertainties have tempered expectations.
"While the BOJ may be forced to stand pat for a while, it doesn't need to ditch rate hikes altogether," said Nobuyasu Atago, a former BOJ official. "It just needs to communicate in a way that when the environment looks right, it can resume rate hikes."
The backdrop is particularly complex for Japan. Although its core inflation hit 3.5 percent in April, primarily driven by food prices, the BOJ is also contending with growth risks—exacerbated by Trump's tariff policies. Earlier this month, the BOJ slashed its growth forecast and signaled a pause in its hiking cycle, with short-term rates still near 0.5 percent.
Other central banks are navigating similar tensions. The European Central Bank (ECB), expected to cut rates in June, may pause thereafter amid inflation worries. ECB board member Isabel Schnabel recently noted, "Tariffs may be disinflationary in the short run but pose upside risks over the medium term."
At the Tokyo event, scheduled sessions covered quantitative tightening, reserve demand, and rate control. They also discussed an IMF paper, "Monetary Policy and Inflation Scares," which explores how pandemic-era supply shocks can lead to lingering inflation.
BOJ Governor Kazuo Ueda delivered the opening keynote, followed by a lecture from Agustin Carstens, head of the Bank for International Settlements.
While much of the event was off-limits to the media, the message was clear: global central banks are in uncharted territory, balancing inflation containment with recession avoidance in a world increasingly shaped by geopolitical trade tensions.
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